“I’m very pleased with our execution, especially as we’ve continued to invest in and strengthen our core business,” said Yahoo CEO Marissa Mayer. “In Q3, we launched new user experiences across many of our digital daily habits — Yahoo Screen, My Yahoo, Fantasy Sports, and more. Now with more than 800 million monthly users on Yahoo — up 20 percent over the past 15 months — we’re achieving meaningful increases in user engagement and traffic.”

Yahoo also said it doesn’t have to sell as many Alibaba shares when the company goes public:

Yahoo also announced today that it has entered into an amendment to theshare repurchase and preference sale agreement with Alibaba Group. Theamendment reduces the maximum number of shares of Alibaba Group thatYahoo is required to sell in connection with a qualified initial publicoffering of Alibaba, from 261.5 million shares to 208 million shares.

Unsure right now what that means — they don’t need to sell as many insider shares, or they are lowering the offering size? We’ll find out.

The declines in search and ad revenue are troubling trends. Esepcially considering that overall ad spending on digital properties continues to surge. The Internet Advertising Bureau estimates the industry grew 18% in the first six months of the year, the Journal’s Greg Bensinger and Nathalie Tadena report.

Yahoo’s stock has already pulled back from the initial post-report bump. It’s now up only 1.6% after hours. That might reflect investors digesting the weak ad and search revenue trend after initially seeing the headline numbers.

Per-share earnings initially topped estimates by a penny, and revenue was on target. Some more on the numbers: Net income was $296.7 million, or 28 cents a share, down 91% from a year-earlier $3.16 billion, or $2.64 a share, That huge number was boosted by a $2.8 billion gain related to the sale of a chunk of Yahoo’s Alibaba Holding stake.

When you exclude that, per-share earnings slipped to 34 cents from 39 cents. Analysts polled by Thomson Reuters had projected a per-share profit of 33 cents and revenue of $1.08 billion. The revenue number was on the money.

Another unsettling bit: The number of ads sold edged up 1%, but the price per ad slumped 7%. Meantime, paid clicks were up 21%, while the price per click was down about 4%. This is all compared with the year-earlier figures.

The full-year outlook edges down again. Revenue, excluding those partner costs (TAC), is expected to be between $4.4 billion and $4.45 billion for the full year 2013. That expectation is down a bit from the $4.45 billion to $4.55 billion that came with the the second-quarter report. In the first-quarter report, the range was $4.5 billion to $4.6 billion.

Here is an early cut at Greg Bensinger’s and Nathalie Tadena’s earnings article. The high-level takeaway: It’s another quarter without meaningful growth.

Yahoo is on an acquisition binge, but that doesn’t necessarily translate directly into revenue. One of Mayer’s stated goals is to pump up the level of developer talent at the company. That explains some of the acquisitions — affectionately called “acquihires.” The idea is that the new talent will create awesome products, and then the ad dollars will follow.

Programming note: We’re a few minutes from conference call, which you can watch above while following along with the blog. If the embedded video isn’t working for you, perchance, you can head over to this site to watch.

A year into Mayer’s tenure at Yahoo, the company is still not showing any growth. She has invested heavily in the business to jumpstart a turnaround, but investors have questioned whether these investments — namely acquisitions and redesigns — will translate into more than just user growth.

Mayer is giving a decent amount of screen time to the new video product: Yahoo Screen. It has SNL and Daily Show content, after all. She also points out Sports — it is fantasy football season, after all.

The look and feel of My Yahoo is stunning, Mayer says. She says there is strong growth in mobile Mail. How much? 20% according to that well timed Tweet that conincides with the broadcast. Nicely done, Yahoo social team. They are live-tweeting Yahoo’s alongside the video.

Mayer is talking up the benefits of the product sprint: They disappeared two years of traffic declines. The numbers include mobile, but they don’t yet include Tumblr. “It’s unprecedented to my knowledge,” she says.

Goldman says capital spending is down and that the company has ample liquidity at $3.21 billion in cash and securities. I guess that’s fair on liquidity — it’s a good chunk of money — but it did drop from $4.79 billion in the second quarter.

Many of Yahoo’s financial numbers are excluding Korea. That’s because Yahoo shuttered its operations in South Korea in 2012. It’s stripping out those results to make a smoother comparison of the business.

Goldman on the Alibaba share amendment: Yahoo is happy it can retain a larger position in the company as Alibaba builds its business. But that’s all he has to say. Sure, that won’t come up during the analyst Q&A.

Mayer says there will be more quarters of investment in the video offering. Makes sense: People who watch video — particularly TV-like programming — will stick around longer than fickle web surfers. Going to take time to translate into revenue, Mayer says.

Mayer explains for the uninitiated that native advertising matches the content — so that’s a better experience for users. That remains to be seen, particularly for fooled users. She says the challenge is that it is a new format, so it’s a learning stage.

Another question about revenue, and please get into the drop in display pricing.

She calls revenue stable and says, hey, we said it would take years to get the company where she wants it. But she is confident that revenue will follow the traffic. Goldman says there are many factors at play in pricing – video, international, etc.

Mayer says the native ad tests say Yahoo might be able to make more money on mobile ads than on desktop. It’s not guaranteed, but it is promising. The takeaway: Native advertising doesn’t look like a fluke. Pricing can improve.

How sustainable is the revenue growth rates? Mayer says there is room to run on click growth, especially when you include mobile. Advertising has been pressured, she says. Yahoo is working with affiliate networks to make sure the ads there are of quality.

He points out the amount of cash on hand, and the employee count. Do you have enough cash to makes deals, and is the employee count stable?

Goldman says $3 billion is a number they like. The company is cash-flow positive and they are buying shares. And, don’t forget, the Alibaba IPO will provide a bump. We have adequate funds to run the business, he says.

Goldman says it is a growth driver. But the focus now is on the product and user experience. Not ready to quantify. … And a follow-up on Alibaba and taxes. Goldman says he was waiting for that one — what took so long? He says the company has some ideas but nothing more to add.

Then a slap on the wrist from the host: limit yourself to one question!

He asks about queries — can you at least tell us if it is up or down? Mayer says no — we want to be respectful of numbers we have released in the past. She says it is true over the years our search share has declined. Yahoo is trading share with Microsoft. But she says the company is confident.

Goldman says search in mobile is the opportunity Yahoo is counting on. Mayer says make no mistake — we want to increase share.

Nevlin Shalit asks via email: is the product refrsesh is working? Mayer calls it the best story. It’s increasing users and user engagement. Goldman says you will see more of that in 2014 since the refreshes are so new.

Mayer answers a question about premium display ads: the home page is doing well. We’re lining up advertisers and new types of formats are selling well. Some challenges: the audience sell-through rate. Goldman says the company is active in meeting with ad agencies. But he says there has been a decrease in the number of advertisers, and that’s something to work on.

If you ask Wall Street, analysts are going to say Yahoo’s overall revenue is flat, there are troubling declines under the hood, and the company keeps slashing its outlook for the full year. It’s not a good turnaround story.

CEO Mayer’s parry is that, look, we said it was a long turnaround and we haven’t even exited stage two of it yet. Yahoo is working on the product refresh, and that is smashing. The revenue comes later after we boost the number of users. CFO Goldman nods accordingly, but says the company won’t project into 2014 cause we’re not there yet.

So, it’s a trust game. For now, investors are giving that trust. The stock is up some 70% so fat this year. Today, shares were down 2% in 4 p.m. trading and less than 1% after hours, even with the once-again lowered outlook.

Yahoo really is a mixed bag right now: There are drops in display-ad and search revenue, but even still Yahoo held the line on overall revenue. Mayer calls that “stable.”

Meantime, Alibaba remains the underlying story. Yahoo owns 24% of it and will get, as Goldman said, a nice infusion when the company goes public. There is a waiting game there. And Yahoo indicated there is a longer game at play: The company doesn’t have to sell as many shares in the IPO — it will get to hold on to a piece of that hot property longer. Goldman was mum on any more details.

Comments (5 of 17)

Pride cometh before the fall. Alibaba or not, Yahoo leadership has shown it is interested in value destruction not creation. The CEO is dangerous to shareholders. Period.
It is hard to believe the statements made on conf. call which show the the lack of integrity and this is what is the core issue. When great companies screw up, they own up and control the situation. Today's NYT article a week late effectively hangs out to dry the initial media PR blitz and shows that you cant fool people- when they have crowdsourcing as a recourse. Yahoo can try to whitewash 10's of thousands of voices but ultimately the question is how can a tech company not have the most basic level of QA???

12:06 am October 17, 2013

DebIndia wrote:

The new yahoo mail is a complete disaster, it will fail eventually, Yahoo has not done any customer survey I guess, otherwise they will com to know the users view about the new design. Since inception does Gmail has changed any of the look and feel of Gmail? NO. Because once a customer is used to a product and some features, changes are not accepted. Yahoo mail, I am sorry I have to leave the long association of yahoo since 12 years, I have become old Yahoo isn't it? So does you - Yahoo.

8:52 pm October 16, 2013

Daniel wrote:

Yahoo email downgrade = FAIL!!!!!!!!!!!!!!!!!

10:02 pm October 15, 2013

Osaka48 wrote:

@ Jan Hyatt wrote about Yahoo's disasterous e-m "upgrade" (I'm a victim) but the WSJ ignores this as a "story"? What's up WSJ? Perhaps a few "Tech" writers should surf the web and look into other "tech" sites.

Afterall it is only a signal that Yahoo's next quarter results could only be worse under its current (and clueless) leadership. Disappointed that the WSJ is asleep at the switch on this one!